Unfair service charges come under review by OFT

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Consumer watchdogs have launched an investigation into whether property management service charges paid by leaseholders are fair.

The Office of Fair Trading (OFT) inquiry will look at service charges for private leaseholders and social housing.

The OFT reckons around 5 million people pay service charges and many have concerns about the amount they pay and the services they receive in return.

The OFT wants to find out:

If managing agents and freeholders work for leaseholders by keeping down costs for maintenance work or building insurance

If leaseholders have enough say in decisions that affect them taken by freeholders, like the appointment of managing agents and the supply of residential property management services

If switching managing agents is easy and whether competition between property managers works well

If managing agent’ and freeholder choice of contractors and services is influenced by links with associated companies and financial inducements

If leaseholders exercising their right to manage their own properties works well

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Rachel Merelie, of the OFT, said: “Service charges for the maintenance of a building can be substantial and we want to make sure that leaseholders are getting a fair deal.

“We are concerned that management agents and freeholders may not be incentivised to keep maintenance costs down and that leaseholders may not receive value for money.

“We will look at whether there is sufficient competition in the market generally as well as taking a close look at specific areas which have been brought to our attention, including services provided to retirement properties.”

Leaseholders pay a service charge to maintain and manage shared buildings, like apartment blocks.

Payments are often based on the floor area of each apartment.

The OFT report will be published by the end of the year.

For more information about the investigation and how to contribute, go to the OFT web site